The expert commercial litigation solicitors at Healys in London and Brighton look at the Tenancy Deposit Protection Scheme as set out in the Housing Act 2004 and associated litigation to illustrate how it can safeguard both tenants and landlords.
Taking influence from Australian Legislation the Government introduced Tenancy Deposit Protection Scheme as set out in Sections 212 to 215 of the Housing Act 2004 taking effect from 6 April 2007. The Government has authorised three schemes: one custodial based; and two insurance based.
The Act applies to deposits paid in connection with Assured Shorthold Tenancies. The Act states that a deposit is any money intended to be held as security for the performance of any obligations of the tenant or the discharge of any liability of his arising under or in connection with the tenancy (S213(8) Housing Act 2004).
The Landlord includes a person or persons acting on his behalf and can, therefore, include the Landlords' agent. The Act provides no differentiation between a "let only" agent and one whose duties continue throughout the Tenancy. The Department of Communities and Local Government has helpfully suggested that where the Agent is not tasked with any responsibilities to protect the deposit and only receives the deposit and passes it straight to the Landlord, the landlord shall be completely responsible.
The requirements relating to the deposit paid are set out in Section 213 of the Act which imposes the obligation on the Landlord that: any deposit must be held in accordance with any authorised scheme; the initial requirement of the authorised scheme, must be dealt with within 14 days of receipt of the deposit; the specified information must be given to the tenants and ‘any relevant person' in the prescribed form and within the same 14 day period.
If the deposit is unprotected the Tenant should, during the term of the AST, attempt to persuade the landlord to protect the Deposit. If the AST has ended the Tenant should write to the Landlord demanding the return of the deposit. It should be noted that if the Landlord has failed to protect the Deposit a Section 21 Notice, served by the Landlord, terminating the AST, may be invalid.
Where the deposit has not been protected the Tenant can make an Application to the Court under Section 214 of the Act. If the Court is satisfied that the Landlord has failed to comply with the Sections 213 obligations as set out above, the Court order repayment of the deposit to the Tenant or payment of the deposit in to an authorised scheme and the Landlord to pay the Tenant a sum equal to three times the amount of the deposit within 14 days.
The County Courts have considered various arguments including for instance: what constitutes a deposit; the effect of the failure to comply with the requirements in 14 days; Claims made after the tenancy has ended; and claims where the Landlord counterclaims or claims set off against the 3 x deposit penalty.
There has been only one High Court case Draycott v Hannells Lettings Limited which concluded that an Agent, who receives payment of a deposit and lodges it with a custodial scheme, is, for the purposes of the Act, acting on behalf of the Landlord and liable for the 3 x penalty. Secondly the case "turns on whether the 14 day requirement is, or is not, a part of the initial requirements of an authorised scheme. If it is not, then when the deposit is paid into the scheme later than 14 days from its receipt by the landlord, but before the tenant commences proceedings, then the court cannot be satisfied under s.214(2)(a), and therefore the court will not be able to make an order under s.214(3) or (4)." Tugendhat J. The decision is welcomed in that it ensures that the deposit is properly protected without unduly punishing the Landlord where the deposit has been paid in to a Tenancy Deposit Scheme, albeit late.
At the conclusion of the AST the Landlord and Tenant may agree the amount of deposit to be returned to the Tenant and retained by the Landlord. Where the Landlord and Tenant disagree, the authorised scheme is notified and the amount in dispute is resolved by Alternative Dispute Resolution.
The legislation was introduced to safeguard both Landlords and Tenants. Tenants in the situation where they thought the Landlord had unreasonably withheld all or part of the Deposit in respect of damage to the property. And Landlords where Tenants withhold the final months rent in lieu of the deposit where the Tenant had also caused damage to the property.
Stankova v Glassonbury (2008) dealt with the situation where a Landlord counterclaimed against the Tenant's claim for 3 x the deposit. District Judge Singleton accepted the Tenant's argument that the award was a strict liability penalty, and that therefore the Landlord could not offset it against rent arrears. There was also no provision for arguments about the return or retention of the deposit on the basis that a statutory scheme included arbitration for disputes about returning or retaining deposit monies.
Although there have been some cases heard to date, most of these cases have been heard in the County Court and therefore the decisions whilst informative are not binding. The Legislation has been in place for over three years now and it is hoped that most Landlords will have familiarised themselves with their obligations, however for those who have not the arguments will continue until there is some binding authority.
Contact Healys solicitors in London and Brighton for commercial law advice
A number of problems and issues can arise between landlords and tenants. We are experienced specialists in advising upon any of your commercial law difficulties or concerns.
For further advice or to discuss the possibility of consulting the commercial litigation solicitors at Healys in London or Brighton please call Gemma Furniss on 01273 664 093 or email her at gemma.furniss@healys.com
